The Joint Chiropractic – Undervalued at Current Prices

The Joint Chiropractic (NASDAQ: JYNT) provides chiropractic care through company owned and franchised clinics with 513 locations across 34 states. The Joint’s business model actively addresses the main complaints of the current insurance based chiropractic system. The Joint has revolutionized access to chiropractic care by making it affordable and convenient. The business is strong and growing, and the current bear market has attractively positioned JYNT’s stock for an asymmetric risk/reward opportunity.

Affordable and Convenient

One of the largest complaints about access to chiropractic care is that it is simply not affordable. Many insurance providers do not offer chiropractic coverage, and even if they do, expensive copays are a major barrier for many potential patients seeking treatment. The Joint Chiropractic operates on a no insurance model. This allows for the cost of chiropractic treatments at The Joint to be approximately 62% less than a traditional copay based insurance visit. The process is smooth; new patients are adjusted within 15-20 minutes and return patients can be adjusted in 5-7 minutes. There is no need for appointments, as most clinics have longer weekday hours and offer weekend hours, and membership is transferrable across all clinics. Between both the affordability and convenience of access, The Joint has become a strong franchise concept. Proof of this lies in the number of patients The Joint sees versus the average chiropractic clinic in the US.

Patient MetricsThe Joint ChiropracticChiropractic Industry Avg.
New Patients per Clinic (year)1,224332
Patients per Week326123
JYNT Patient Metrics vs. US Chiropractic Industry Average

A High-Growth Business

JYNT has various revenue streams. The company’s 60 owned clinics account for about 53% of their revenue. Their franchisees pay the company 7% of gross sales and 2% for advertising. The company has a regional developer program where the RDs are responsible for meeting a minimum commitment for clinics in a specified territory and receive a 3% royalty from their franchises. Additionally, the company charges a nominal software use fee to its clinics.

Americans spend an estimated $15 billion annually on chiropractic. At $48 million in revenue for 2019, The Joint has just 0.32% of the US chiropractic market. The Joint’s updated data models now show potential for up to 1800 clinics, up from 1700 clinics in 2019. Per their last conference call, CEO Peter Holt stated that when a franchise concept gets to 1,000 units, the business will reach an inflection point where it will no longer be a strong regional brand in pockets like Georgia/South Carolina, Arizona, California, and Texas, but will be recognized nationally.

In 2019, JYNT saw 585,000 patients, up 26% from 2018. Of those 585,000 patients, 26% were totally new to chiropractic. At 0.32% of the market with 513 clinics, at 1500-1800, the company should easily be able to capture 1% of the total chiropractic market. The Joint’s existing clinics are strong and growing aggressively. In 2019, comparable sales grew 25% versus 2018 for clinics open 13 months. Clinics open 48 months or longer had 19% comp growth in 2019 versus 2018. In early 2020, JYNT secured a $7.5 million-dollar line of credit with JP Morgan Chase, strongly positioning the company to grow without issuing equity and diluting shareholders.

Valuation and Catalyst

The catalyst for this company will be reaching the 1,000-clinic inflection point where the franchise concept grows stronger and the brand inflects to national recognition. At $48 million in revenue and 585,000 patient visits, the company generates an average revenue per user of $89. The company has many levers to play with: if retention rates increase, or prices increase modestly, the company would be in a strong position to earn significantly more revenue from their patients. The table below breaks out EBITDA multiples for The Joint having 1% and 2% share of the chiropractic market, at an unimproved 11% EBITDA margin, and a 15% improved EBITDA margin (from operational leverage and efficiencies at scale).

Chiro IndustryJYNT’s mkt shareRevenue at market share %EBITDA Margin15 times EBITDA20 times EBITDA25 times EBITDA
$15 billion2%$300 million11% (not improved)$495 million$660 million$825 million
$15 billion2%$300 million15% (improved)$675 million$900 million$1.125 billion
$15 billion1%$150 million11% (not improved)$247.5 million$330 million$412.5 million
$15 billion1%$150 million15% (improved)$337.5 million$450 million$562.5 million
JYNT Market Share and Hypothetical Examples

JYNT’s market cap is presently $120 million and the company has about 13.8 million shares outstanding. Assuming the company dilutes its shares at 8% a year (historical dilution, unlikely now being cash flow positive and with their $7.5 million line of credit) – in 2023, the company should have about 17.5 million shares outstanding when they hit their 1,000-clinic benchmark. If they have revenue around $100 million, 15% EBITDA margin, and trade for 20 times EBITDA, their market cap would be approximately $300 million, divided by the 17.5 million shares gives JYNT a value of about $17 a share. Longer term if the company opens 1,800 clinics and gets average revenue per clinic up from ~$93,000 to $120,000, at a 15% EBITDA margin and a 15 X EBITDA multiple, divided out by 20 million shares factoring in future dilution, the stock is still worth around $24. Even if the company doubles their share count over the next few years, JYNT could still be a 2X at current prices.

*Disclaimer: I am long shares of JYNT. I can change my mind at any time. Do your own due diligence, this was written for entertainment purposes only.

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